CAG Report on State Finances FY25: Rising Subsidies and Role of the CAG

Subject: GS 2: Polity and Governance

Context: 

The Comptroller and Auditor General (CAG) of India has released its FY25 report on state finances.

Explore UPSC Foundation Courses

Explore UPSC Foundation Courses

Key Highlights of the CAG Report on State Finances FY25

• Disproportionate Growth: Over the past decade (FY16 to FY25), absolute subsidy spending by 28 states has tripled from ₹1.4 lakh crore to ₹4.4 lakh crore, significantly outstripping the growth of their overall total expenditure, which grew only 2.3 times.

UPSC Coaching Classes

• Macro-Fiscal Stress Indicators: State subsidies as a proportion of overall revenue expenditure entered double digits for the first time in FY25, expanding rapidly to constitute 10.2% of the total Gross State Domestic Product (GSDP) across India compared to 7.7% in FY16.
• Sectoral Dominance: The fiscal burden is highly concentrated in two main sectors, with Energy (primarily power subsidies) accounting for 43% of total outlays, followed by Agriculture (price support, seed/fertilizer distribution, and loan waivers) at 30%.
• Extreme Regional Concentration: Fiscal asymmetry is highly visible, with just five states (Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh, and Rajasthan) consuming 54% (₹2.3 lakh crore) of the total national subsidy pool. 
  • Karnataka, MP, TN, and Punjab emerged as the top spenders, where subsidies took up over 13.5% of their entire state budgets.
• The Lean Spending Clusters: Six Northeastern states (Arunachal Pradesh, Sikkim, Nagaland, Meghalaya, Tripura, Assam) spent less than 1% of their total budgets on subsidies, while states like Kerala and Uttarakhand spent under 2%. 
  • The CAG attributes this to smaller consumer bases, lower industrial density, and lesser power-intensive agricultural irrigation.

Check Out UPSC CSE Books

Visit PW Store

DOWNLOAD PDF